Autumn Statement 2011
Chancellor George Osborne presented the
Autumn Statement to the House of Commons on 29 November 2011. This newsletter
summarises the key points, and rounds up some of the recent changes announced
by the Coalition Government.
Contents
Overview: Chancellor sticks
to Plan A for the economy
Tax Credits and the state
pension
This publication was prepared immediately following the Chancellor’s
Autumn Statement based on official press releases and supporting documentation.
The publication is for guidance only, and professional advice should be
obtained before acting on any information contained herein. No responsibility
can be accepted by the publishers or the distributors for any loss occasioned
to any person as a result of action taken or refrained from in consequence of
the contents of this publication.
Overview: Chancellor sticks to Plan A for the economy
With the latest report from the Office for Budget
Responsibility painting a gloomy picture for the UK economy, Chancellor George
Osborne vowed that the Government would stick to its austerity programme to
protect against ‘the sovereign debt storm’.
In line with predictions, the Chancellor announced a
reduction in the UK’s economic growth forecasts, with the 2011 figure revised
downwards from 1.7% to 0.9%. This was accompanied by an increase in Government borrowing,
with the forecast for 2011/12 rising to £127bn, and total additional borrowing
amounting to £112bn over the next four years. However, the Chancellor rebuffed recent
reports that the UK is set to slip back into recession in the coming months.
Key announcements for business include the introduction
of further credit easing, with up to £20bn being made available to small and
medium-sized businesses through the National Loan Guarantee Scheme. The
business rate relief ‘holiday’ for small firms will be extended to April 2013,
and a new Seed Enterprise Investment Scheme for small businesses will offer 50%
income tax relief for those investing up to £100,000 in new start-ups, together
with a one year freeze on capital gains tax. A £940m ‘Youth Contract’ will also
aim to boost employment by means of subsidised work placements for young workers.
Also central to the announcements was confirmation
of a National Infrastructure Plan to boost the UK’s road, rail and broadband
facilities, to be funded by £5bn of Government spending, with a further £20bn investment
expected from British pension funds.
Meanwhile, public sector workers will experience a
further squeeze, with a 1% cap on pay rises, and while some benefits will rise
in line with inflation, other tax credits will see below-inflation increases.
Other significant announcements include a mortgage
indemnity scheme aimed at helping 100,000 people to buy homes, a doubling of
the number of childcare places for two year olds in England, a new cap on
regulated rail fare increases, a cancellation of the rise in fuel duty
scheduled for January, and a further increase in the bank levy.
The Autumn Statement contained announcements
affecting many aspects of business life.
Tax changes
At the last Budget the Government cut the main rate
of corporation tax to 26%, and it will fall by a further 1% each year until
2014, when it will reach 23%.
Changes to the tax rules with immediate effect will
ensure the amount of tax relief given to employers making asset-backed pension
contributions to registered pension schemes accurately reflects the amount of
payments made, and does not give rise to unintended excess relief.
The climate change levy discount on electricity for
climate change agreement participants available from 1 April 2013 will be
increased to 90%.
As announced, the Government will remove the VAT
relief for low value goods (below £15) sent to the UK from the Channel Islands
with effect from 1 April 2012.
Enterprise Zones
Enterprise Zones in six assisted areas – Black
Country, Humber, Liverpool, North Eastern, Sheffield, and Tees Valley – will
qualify for enhanced capital allowances. In these areas, 100% allowances will
be available for plant and machinery investment incurred between April 2012 and
March 2017. Discussions continue with the devolved administrations regarding
enhanced capital allowances in their Enterprise Zones.
Venture Capital Schemes
The Chancellor announced a new Seed Enterprise
Investment Scheme (SEIS) to encourage investment in new start-up companies.
SEIS will provide income tax relief of 50% for individuals who invest in shares
in qualifying companies, with an annual investment limit for individuals of
£100,000 and a cumulative investment limit for companies of £150,000.
In addition, the scheme will offer a capital gains
tax ‘holiday’ for investments made. This will provide for a capital gains tax
exemption on gains realised on disposal of an asset in 2012/13 and invested
through SEIS in the same year.
The Enterprise Investment Scheme (EIS) will be
simplified by relaxing the connected person rules and the definition of shares
that qualify for relief. At the same time the focus of the scheme will be
tightened by the introduction of a new test to exclude companies set up for the
purpose of accessing relief, exclude acquisition of shares in another company
and exclude investment in Feed-in-Tariffs businesses.
In addition to these changes, the Government will
remove the £1m investment limit per company for Venture Capital Trusts (VCTs)
to reduce the administrative burdens of the scheme.
The Government had already announced that from 6
April 2012 the employee limit for both EIS and VCT purposes will be increased
to fewer than 250 employees (currently 50), while the gross asset limit will
rise to £15m before the investment.
In addition, the maximum annual amount that can be
invested in a company will increase to £10m and the maximum annual amount that
an individual can invest under the EIS will rise to £1m.
Business rates
The Government will extend the small business rate
relief ‘holiday’ for a further six months from 1 October 2012 and give
businesses the opportunity to defer 60% of the increase in their 2012/13
business rate bills as a result of the Retail Prices Index uprating, to be
repaid equally across the following two years.
Employment regulation
The qualifying period for unfair dismissal claims is
to be increased from one year to two years from April 2012 to help address
employers’ fears about the risks of taking on a new member of staff. The
Government will consult on the level of fees, to be introduced for individuals
who want to bring cases to employment tribunals.
Planning law
The Government will:
Credit easing
The Government announced a package of up to £21bn of
credit easing measures to support smaller and medium-sized businesses,
comprising:
Innovation
The Government has announced that it will:
The Government will consult on the detail at Budget
2012 and aims to ensure that SME R&D incentives are not reduced as a result
of this change. This builds on measures at Budget 2011 to increase the R&D
tax credits for SMEs.
In December 2011 the Prime Minister will set out the
Government’s strategy to support the life sciences work of universities, the
NHS, private investors and businesses, to attract and develop talent, and
improve incentives.
Following consultation over summer 2011, the
Government will publish on 6 December 2011 further details of the Patent Box
and its reform of the Controlled Foreign Company rules and R&D tax credits.
Analysis has shown that the stamp duty land tax
relief for first time buyers has been ineffective in increasing the number of
first time buyers entering the market. This relief will therefore end on 24
March 2012 as planned.
The ‘New build indemnity scheme’ provides a
guarantee for up to 100,000 new mortgages at up to 95% loan to value for new
build houses and flats in England. For each new build property sold under the
scheme, the home builder will contribute 3.5% into an indemnity fund, with the
Governments supporting the fund to a total of 9% of the property value. The indemnity
fund pays out to the lender if a property financed under the scheme is
repossessed and there is a shortfall. Builders will take the first loss in the
indemnity, with the Government only being called upon to pay once the builder’s
fund has been exhausted.
The Government will raise the discounts for the
‘Right to Buy scheme’. For each home purchased, the
Government will provide an additional affordable home, in addition to plans to deliver
up to 170,000 affordable homes through the new ‘Affordable Homes programme’.
A new £400m ‘Get Britain Building’ investment fund
will support firms in need of development finance. This will be aimed at making
progress on stalled sites which have planning permission and are otherwise
ready to start.
Fuel duty
The planned 3.02p per litre fuel duty increase that
was due to take effect on 1 January 2012 will be deferred to 1 August 2012, and
the inflation increase that was planned for 1 August 2012 (expected to be 1.92p
per litre) will be cancelled.
Roads and rail
A new National Infrastructure Plan is intended to
improve Britain’s road and rail systems, with over 30 specific projects on
motorways and rail lines detailed. £5bn of funding will come from government
spending, with an anticipated £20bn investment coming from UK pension funds. An
additional £1bn of new private sector investment in regulated industries will
be supported by government guarantee.
Train fares have been expected to increase to RPI
plus 3% to pay for the investment in railways and new trains. However, the
Government will now limit the increase to Transport for London and regulated
rail fares to RPI plus 1% for one year from January 2012.
Air Passenger Duty
The extension of Air Passenger Duty (APD) to flights
taken aboard business jets, effective from 1 April 2013, will go ahead. Details
will be set out following the APD consultation on 6 December 2011.
Superfast broadband
£100m will be invested to create up to 10 ‘super-connected
cities’ across the UK, with 80-100 megabits per second superfast broadband and
city-wide high-speed mobile connectivity. The four national capitals will all
receive support from this fund, and a UK-wide competition will decide on up to
six further cities that will also receive funding. These will be announced in
the 2012 Budget.
A £20m Rural Community Broadband Fund will be opened
to roll out superfast broadband to rural areas, and this may be extended if
successful.
Automatic pension enrolment delayed for small
businesses
The Government has announced that small businesses will
be given more than an extra year to comply with the requirements of the new
automatic pension enrolment system.
Auto-enrolment is being phased in from October 2012,
on a staged basis, beginning with larger employers. Following the announcement,
the original April 2014 starting deadline for employers with less than 50
workers has been deferred until the start of the next Parliament.
Under the system, employers will have to enrol
automatically all eligible workers into any qualifying pension scheme. This
could be an existing company scheme (if it meets, or can be changed to meet,
the necessary criteria) or NESTs (National Employment
Savings Trusts), a simple low-cost pension scheme
being introduced by the government.
All businesses will eventually need to contribute at
least 3% on a band of qualifying pensionable earnings for eligible jobholders.
However, to help employers adjust, compulsory contributions will be phased in.
Employees will also contribute to their pension
scheme – this will start at 1% of their salary, before later rising to 4%. An
additional 1% in the form of tax relief will mean that there is a minimum 8% contribution
rate.
Changes to the state pension age
The Chancellor has revealed that the rise in the
state pension age to 67 will now come into effect between April 2026 and April
2028, saving an estimated £60bn between 2026/27 and 2035/36.
Meanwhile, the Government recently announced its
intention to delay its plans to increase the state pension age to 66, following
concerns that many thousands of women will have to wait longer to collect their
pensions.
Under the plans, the pension age for women was set
to rise from 60 to 65 by 2018, followed by a second increase in the pension age
to 66, in April 2020. However, the second rise in the pension age will now take
place in October 2020, benefiting around 245,000 women.
The Government plans to invest an extra £600m to fund
100 additional Free Schools by the end of this Parliament. This will include
new specialist maths Free Schools for 16-18 year olds, supported by strong university
maths departments and academics.
It will also invest an additional £600m to support
those local authorities with the greatest demographic pressures. This funding
is expected to deliver up to an additional 40,000 school places.
Youth Contract
The Government is introducing a new ‘Youth
Contract’, worth a total of £940m over the Spending Review 2010 period.
The Government will fund wage incentives for 160,000
young people to make it easier for private sector employers to take them on. In
addition it will fund at least 40,000 incentive payments for small firms to
take on young apprentices, and extra support from Jobcentre Plus for unemployed
18-24 year olds.
An offer of a work experience or Sector Based Work
Academy place will be made to every unemployed 18-24 year old who wants one
after three months on Jobseeker’s Allowance, together with a new £50m a year
programme to support some of the most disadvantaged 16-17 year olds into
education, an apprenticeship or a job with training.
2012/13: Tax Credits and the state pension
For 2012/13, the child element of the Child Tax
Credit will be uprated by £135 per year in line with CPI, but the planned £110
above inflation increase will not go ahead.
The disability elements of tax credits will be
uprated in line with CPI, but the couple and lone parent elements of the
Working Tax Credit will not be uprated.
In line with the ‘triple guarantee’, the full basic
State Pension will rise by £5.30 to £107.45 per week. The full couple rate will
rise by £8.50 to £171.85 per week. The standard minimum income guarantee in
Pension Credit will increase by 3.9% to £142.70 per week for single pensioners
and £217.90 a week for pensioner couples. The threshold for Savings Credit will
increase to £111.10 for single pensioners and £177.20 for pensioner couples.
Income tax and personal allowances
The personal allowance for those aged under 65 increases
to £8,105 from 6 April 2012. However, the advantage to higher rate taxpayers
will be countered by a lowering of the higher rate threshold, to £34,370.
Capital allowances
The current system of capital allowances will see
significant changes from April 2012, including a reduction in the amount of expenditure
on plant and machinery which qualifies for a 100% year one write-off (via the annual
investment allowance) from £100,000 to just £25,000.
In addition, for chargeable periods ending on or after
1 April 2012 (for businesses within the charge to corporation tax) and on or
after 6 April 2012 (for businesses within the charge to income tax), the rates
of writing down allowances will be reduced to 18% (main rate pool) and 8%
(special rate pool).
Pensions tax relief lifetime limit
The lifetime allowance on money that can be accrued
in a pension fund and still receive tax relief, is set to fall from £1.8m to
£1.5m from April 2012.
Research & Development
The additional corporation tax deduction given to small
and medium-sized enterprises for qualifying R&D expenditure will rise from
100% to 125%. It will have effect for expenditure incurred on or after 1 April
2012.
Inheritance tax
A reduced inheritance tax rate of 36% will apply
from 6 April 2012 to death estates, where 10% or more of the net estate is left
to charity.
If you are affected by the changes, please contact
us for more information and advice.
What they said...
‘After 18 months in office the verdict is in: Plan A has
failed and it has failed colossally... cutting too far and too fast has backfired
and every one of the Chancellor’s claims of a year ago has completely unravelled’
Ed Balls, Shadow
Chancellor
‘This Autumn Statement works with the realities of today and provides an imaginative
framework for UK businesses as it strives to secure growth and jobs. This is
“Plan A Plus” in all but name’
John Cridland,
Confederation of British Industry
‘The biggest challenges to UK businesses remain global demand and
economic uncertainty. Firms will give the Chancellor credit for pulling the levers
under his control, but will remain concerned about the wider economic
environment’
David Kern, British
Chambers of Commerce
‘Taken as a package, the announcements in the Autumn Statement address
many of the concerns raised by small businesses… the key now is for the
Government to be consistent, and set to the task of translating the policy intentions
into tangible actions on the ground’
John Walker,
Federation of Small Businesses